Exam 5: Introduction to Valuation: the Time Value of Money

Sue invested $5,000 eleven years ago at 12%. Terri has the same amount saved today as Sue has. Terri also earns 12% but she only invested $2,500. How long ago did Terri invest her money?

You would like to give your daughter $40,000 towards her college education thirteen years from now. How much money must you set aside today for this purpose if you can earn 6.3% on your funds?

You invest $1,000 in an account paying 5% simple interest. You do not add nor withdraw any funds from this account. Every year, your account balance will:

Lakeside Inc. invested $735,000 at an 11.25% rate of return. The company sold their investment for $1,067,425. How much longer would Lakeside have had to wait if they had wanted to sell their investment for $1.25 million?

You will be receiving $5,000 from your family as a graduation present. You have decided to save this money for your retirement. You plan to retire thirty-five years after graduating. How much additional money will you have at that time if you can earn an average of 8.5% on your investment instead of just 8%?

All else being the same, which of the following statements is correct?

Chia Burgers began operations by opening 115 restaurants in Western Canada at the end of its first year of operations. By the end of year 2, an additional 5 restaurants were opened. By the end of year 3, there were 130 restaurants operational. At the end of year 5, there were 138 total restaurants. From the end of year 1 to the end of year 5, the number of eating establishments grew at a rate of ____________ compounded annually.

The future value of a single sum will increase more rapidly when the frequency of compounding increases.

Grandma Jenkins knows that she has between six and nine months left to live. She wants to leave each of her grandchildren $1,000 when she dies. For this purpose, she has established a trust fund and has deposited sufficient monies to provide for her twelve grandchildren. Today, she just discovered that her daughter is going to have twins, increasing the number of her grandchildren to thirteen. To ensure her final wish is fully funded, Grandma Jenkins needs to:

Tom and Antonio both want to open savings accounts today. Tom wants to have $1,000 in his savings account six years from now. Antonio wants to have $1,000 in his savings account three years from now. Tom will need to deposit twice the amount of money today as Antonio.

An investor is considering depositing $20,000 in an account earning 5% compounded quarterly for the next three years. Afterwards, he will take this amount and contribute $200 quarterly for the next four years at a rate of 4% compounded semi-annually. Finally, over the next two years, he will withdraw $1,000 annually at a rate of 3.5% compounded monthly. Determine the future value at the end of this time period.

Robin invested $10,000 in an account that pays 5% simple interest. How much more could she have earned over a 40-year period if the interest had compounded annually?

Jamie deposits $1,000 into an account that pays 4% interest compounded annually. Chris deposits $1,000 into an account that pays 4% simple interest. Both deposits were made today. At the end of five years, Chris will have more money in his account than Jamie has in hers.

Compound interest is best defined as the interest earned:

At an interest rate of 10% and using the Rule of 72, how long will it take to double the value of a lump sum invested today? How long will it take after that until the account grows to four times the initial investment? Given the power of compounding, shouldn't it take less time for the money to double the second time?

Today, you earn a salary of $37,800. What will your annual salary be twelve years from now if you receive annual raises of 3.6%?

Faith invests $4,500 in an account that pays 4% simple interest. How much money will she have at the end of eight years?

Twenty years ago, Max invested $10,000. Thirty years ago, Julie invested $5,000. Today, both Max and Julie's investments are each worth $35,000. Which one of the following statements is correct concerning their investments? Assume that they will continue earning the same rate of return.

Discounting is the process of finding the present value of some future amount.

You wish to have $400,000 at the end of twenty-five years. In the last ten years, you contribute $1,000 semi-annually at a rate of 5.8% compounded monthly. During the middle ten years, you withdraw $750 quarterly at a rate of 4.5% compounded annually. Given this information, determine the initial deposit that has to be made at the start of the first five years at a rate of 4% compounded monthly.